Is Nokia Headed for Troll Country?

The sale of the its handset business to Microsoft provides Nokia with the cash for yet another reinvention of itself, but it presents the Finnish company with a fundamental choice.

The sale of its handset business to Microsoft provides Nokia with money for yet another reinvention of itself, but it presents the Finnish company with a fundamental choice. Will it retreat into the minority activity of licensing, or can it revitalize itself (and Europe) with a manufacturing-led business? Or is value-in-information now the name of the game?

It is interesting that Microsoft threw a $250 million datacenter to be built in Finland into its
deal to acquire Nokia's handset business -- possibly as a sop to keep at least some of the regulators happy.

A datacenter may be able to make use of Finnish water courses for cooling, but it is no replacement for engineers designing and making material products that are then bought globally. Nokia will continue to sell networking infrastructure equipment, but its remaining focus on mapping services and technology development and licensing suggests that it is seeking the low capital intensity of the IP licensing uplands that lie adjacent to troll country.

The path has been taken before by ARM and Imagination, but there is still the concern that the authorship of IP is a minority activity that can only be done by a few people and that captures a relatively small part of the product value.

When I ask senior executives about geographic issues they often respond by saying that their company competes in a global market, and thinking on a national or regional basis is old fashioned. That may be tenable from a senior executives' point of view as he or she flies around the world from company site to company site. It may even be tenable from the shareholders' perspective. But everybody has to live somewhere, and from a citizen's point of view, if wealth is not created in your region and shared around through the combination of local spending and taxation, how is your region going to continue to be able to afford its standard of living?

It was global competition, often from the US and Japan, that reduced Europe to having national champions in various manufacturing sectors. The competition broadened and European champions emerged. Now Philips has got out of consumer electronics, and Nokia has exited mobile phones. Siemens is hanging in there in industrial automation. For now, Europe continues to have local design and manufacturing of several makes of automobile and in the politically strategic aerospace sector through Airbus. But the pressure continues to increase with the emergence of Chinese and Indian competitors.

So will Europe become the regional equivalent of a "sink" town where all the young people of talent get out as soon as possible and head to the bright lights for exciting employment? Those bright lights were once in the United States but would now also be in Taiwan, China, and India. Ultimately, such a process would leave Europe with an aging population unable to service its own needs, let alone create the value to draw in much-needed cash.

But hope springs eternal. Nokia is no stranger to reinvention. It has evolved from its origins in 1865 as a riverside paper mill. It has provided paper-based insulation for electrical wires. From there it moved into rubber and made products from rubber boots through electrical cable to tires. The reinvention that turned Nokia into a mobile phone company happened in 1979, and it is noticeable that manufacturing and product delivery were a fundamental part of each offering.

One hint that Nokia has bigger plans than to just design and patent stuff is that the sell-off deal includes €1.5 billion (about US$2 billion) in funding options, backed by Microsoft. It would be good if Nokia could use that money, as well as the considerable proceeds of the sale of its handset business, for acquisitions and investments -- and yet another reinvention that will create value and jobs in Europe.

Yes, agreed: companies will be companies. But then again countries will be countries: But I think Peter conjectures about the fallout of lost engineering jobs in Finland and Europe, not just whether he thinks Nokia is on the right or moral track. Most people still live in countries with borders and citizens, who hope that they don't necessarily have to travel to another country to find work. You want your country to be prosperous and have a strong economy and job market. As the blog says, What is "tenable from a senior executives' point of view as he or she flies around the world from company site to company site" is seen differently from a "citizen's point of view, if wealth is not created in your region and shared around through the combination of local spending and taxation, how is your region going to continue to be able to afford its standard of living?"

There seems to be a disconnect here, between what politicians or individual workers might prefer, vs how a company has to think to stay in business. Business goes where it makes most sense. They don't care about national boundaries, except perhaps as feel-good platitudes by the corporate execs during pep talks to the employees.

Even if Nokia reinvents itself successfully, I don't see why this has to be in Finland anymore, or certainly not in Finland exclusively.

I think most young people who have any ambition have always realized this, when they are of an age to begin their careers. You investigate where the jobs are that interest you, and you go there. It's always been thus. These days, with globalization, it's just more so. I think of this sort of like water naturally flowing to the low ground, always striving to be at the same level everywhere. Globalization is like removing dams or other obstructions, that force the water level to be different in different locations.

"Ultimately, such a process would leave Europe with an aging population unable to service its own needs, let alone create the value to draw in much-needed cash."

Happened to discuss the same topic with several of my friends. And honestly this is a very plausible situation, unless Europe put some serious effort to use the energy of its young people, by redirecting them into technology and entreprenuership.

To me the issue that i am struggling with...perhaps reflected in my article... is whether Nokia shareholders are best served by returnning to a business model that makes objects or whether making intellectual property IS the business to be in going forward and that the objects associated with the IP are the dongles that stop people ripping you off.

Interesting idea that this deal might in part be motivated by a desire to consolidate the intellectual propterty portfolios of the two companies. M'soft is already said to be earning more revenues in royalties for IP on non Windows Phone handsets than it earns for actual sales of Windows Phone handsets. Ouch!

I had not heard about a M'soft datacenter in Finland as part of the deal, but it makes sense. Facebook already has a Scandinavian data center. These days its cool to place these computer warehouses in such cool climates.